2010 (7) TMI 1181 - SC - Indian Laws

Suit for specific performance of an oral agreement for commercial collaboration for business benefits - validity of a novel and innovative direction by the High Court, purportedly issued to discourage frivolous and speculative litigation - appellant claims to be a builder and real estate dealer - Whether a court has the power to pass an order directing a plaintiff in a suit for specific performance (or any other suit), to file an undertaking that in the event of not succeeding in the suit, he shall pay ₹ 25 lakhs (or any other sum) by way of damages to the defendant - whether the collaboration agreement, as alleged by the appellant, is specifically enforceable, having regard to the prohibition contained in Section 14(1)(b) and (d) of the Specific Relief Act, 1963. HELD THAT - The appellant claims to be a builder and real estate dealer. If the appellant entered into a collaboration agreement orally with numerous details as set out in the plaint (extracted in Para (2) above) and could secure a receipt in writing for ₹ 51,000/-, nothing prevented him from reducing the said terms of the alleged collaboration agreement in the form of an agreement or Memorandum of Understanding and have it signed by the owners of the property. No reason is forthcoming as to why that was not done. The property stands in the name of second respondent (Defendant No. 2), but she did not sign the receipt. There is nothing to show that the second respondent participated in the alleged negotiations or authorized her husband-the first respondent to enter into any collaboration agreement in respect of the suit property. The receipt is not signed by the first respondent as Attorney Holder or as the authorized representative of the owner of the property. From the plaint averments it is evident that appellant did not even know who the owner was, at the time of the alleged negotiations and erroneously assumed that first respondent was the owner. The execution of a receipt for ₹ 51,000/- by the first respondent even if proved, may at best make out a tentative token payment pending negotiations and finalization of the terms of an agreement for development of the property. The agreement is alleged to have been entered on 10.6.2004. But the plaintiff issued the first notice calling upon defendants to perform, only on 9.3.2007 and filed the suit on 30.6.2007. There was no correspondence or demand for performance, in writing, prior to 9.3.2007, even though the alleged agreement was a commercial transaction. Every person has a right to approach a court of law if he has a grievance for which law provides a remedy. Certain safeguards are built into the Code to prevent and discourage frivolous, speculative and vexatious suits. Code, nowhere authorizes or empowers the court to issue a direction to a plaintiff to file an undertaking to pay damages to the defendant in the event of being unsuccessful in the suit. The Code also does not contain any provision to assess the damages payable by a plaintiff to defendant, when the plaintiff's suit is still pending, without any application by defendant, and without a finding of any breach or wrongful act and without an inquiry into the quantum of damages. There is also no contract between the parties which requires the appellant to furnish such undertaking. None of the provisions of either TP Act or Specific Relief Act or any other substantive law enables the court to issue such an interim direction to a plaintiff to furnish an undertaking to pay damages. In the absence of an enabling provision in the contract or in the Code or in any substantive laws a court trying a civil suit, has no power or jurisdiction to direct the plaintiff, to file an affidavit undertaking to pay any specified sum to the defendant, by way of damages, if the plaintiff does not succeed in the suit. In short, law does not contemplate a plaintiff indemnifying a defendant for all or any losses sustained by the defendant on account of the litigation, by giving an undertaking at the time of filing a suit or before trial, to pay damages to the defendants in the event of not succeeding in the case. As the provisions of the Code are not exhaustive, Section 151 is intended to apply where the Code does not cover any particular procedural aspect, and interests of justice require the exercise of power to cover a particular situation. Section 151 is not a provision of law conferring power to grant any kind of substantive relief. It is a procedural provision saving the inherent power of the court to make such orders as may be necessary for the ends of justice and to prevent abuse of the process of the court. It cannot be invoked with reference to a matter which is covered by a specific provision in the Code. It cannot be exercised in conflict with the general scheme and intent of the Code. It cannot be used either to create or recognize rights, or to create liabilities and obligations not contemplated by any law. The direction to the plaintiff to furnish an undertaking to pay ₹ 25 lakhs to defendants in the event of losing the case, is an order in terrorem. It is made not because the plaintiff committed any default, nor because he tried to delay the proceedings, nor because he filed any frivolous applications, but because the court is unable to find the time to decide the case in view of the huge pendency. We appreciate the anxiety shown by the High Court to discourage land-grabbers, speculators, false claimants and adventurers in real estate from pressurizing hapless and innocent property owners to part with their property against their will, by filing suits which are vexatious, false or frivolous. But we cannot approve the method adopted by the High Court which is wholly outside law. In a suit governed by the Code, no court can, merely because it considers it just and equitable, issue directions which are contrary to or not authorized by law. The High Court can certainly innovate, to discipline those whom it considers to be adventurers in litigation, but it has to do so within the four corners of law. It is well-settled that the doctrine of lis pendens does not annul the conveyance by a party to the suit, but only renders it subservient to the rights of the other parties to the litigation. Section 52 will not therefore render a transaction relating to the suit property during the pendency of the suit void but render the transfer inoperative insofar as the other parties to the suit. Transfer of any right, title or interest in the suit property or the consequential acquisition of any right, title or interest, during the pendency of the suit will be subject to the decision in the suit. Having regard to the facts and circumstances, we are of the view that this is a fit case where the suit property should be exempted from the operation of Section 52 of the TP Act, subject to a condition relating to reasonable security, so that the defendants will have the liberty to deal with the property in any manner they may deem fit, inspite of the pendency of the suit. The appellant-plaintiff has alleged that he is a builder and real estate dealer. It is admitted by him that he has entered into the transaction as a commercial collaboration agreement for business benefits. The appellant has further stated in the plaint, that under the collaboration agreement, he is required to invest ₹ 20 lakhs in all, made up of ₹ 16,29,000/- for construction and ₹ 3,71,000/- as cash consideration and that in lieu of it he will be entitled to ground floor of the new building to be constructed by him at his own cost. Treating it as a business venture, a reasonable profit from such a venture can be taken as 15% of the investment proposed, which works out to ₹ 3 lakhs. Therefore it would be sufficient to direct the respondents to furnish security for a sum of ₹ 3 lakhs to the satisfaction of the court (learned Single Judge) as a condition for permitting the defendants to deal with the property during the pendency of the suit, under Section 52 of the TP Act. The lack of appropriate provisions relating to costs has resulted in a steady increase in malicious, vexatious, false, frivolous and speculative suits, apart from rendering Section 89 of the Code ineffective. Any attempt to reduce the pendency or encourage alternative dispute resolution processes or to streamline the civil justice system will fail in the absence of appropriate provisions relating to costs. There is therefore an urgent need for the legislature and the Law Commission of India to re-visit the provisions relating to costs and compensatory costs contained in Section 35 and 35A of the Code. In the result, we allow this appeal in part, set aside the order of the Division Bench and Learned Single Judge directing the plaintiff-appellant to file an affidavit undertaking to pay ₹ 25 lakhs to defendants-respondents in the event of failure in the suit. Instead, we permit the defendants-respondents u/s 52 of TP Act, to deal with or dispose of the suit property in the manner they deem fit, in spite of the pendency of the suit by the plaintiff, subject to their furnishing security to an extent of Rs. Three lakhs to the satisfaction of the learned Single Judge.

Summary

Issues Involved:
1. Validity of the High Court's direction to the plaintiff to file an undertaking to pay damages.
2. Specific enforceability of the alleged oral collaboration agreement.
3. Application of Section 52 of the Transfer of Property Act (TP Act) and the doctrine of lis pendens.
4. Adequacy and application of provisions in the Code of Civil Procedure (CPC) related to costs and compensatory costs.

Issue-wise Detailed Analysis:

1. Validity of the High Court's Direction:
The primary issue was whether the court has the power to direct a plaintiff to file an undertaking to pay damages to the defendant if the plaintiff does not succeed in the suit. The Supreme Court concluded that the Code of Civil Procedure (CPC) does not authorize such a direction. The court emphasized that Section 151 of the CPC, which saves the inherent powers of the court, cannot be used to create new procedures or obligations not contemplated by law. The court stated, "The Code, nowhere authorizes or empowers the court to issue a direction to a plaintiff to file an undertaking to pay damages to the defendant in the event of being unsuccessful in the suit."

2. Specific Enforceability of the Alleged Oral Collaboration Agreement:
The court doubted the enforceability of the alleged oral collaboration agreement under Section 14(1)(b) and (d) of the Specific Relief Act, 1963. The agreement was seen as vague and incomplete, requiring further consensus and decisions on several details. The court noted, "The performance of the obligations of a developer/builder under a collaboration agreement cannot be compared to the statutory liability of a landlord to reconstruct and deliver a shop premises to a tenant under a rent control legislation." Additionally, the court highlighted that the appellant did not make an alternative prayer for compensation for breach, which further complicated the enforceability.

3. Application of Section 52 of the TP Act and the Doctrine of Lis Pendens:
The court recognized that the pendency of the suit affected the defendant's right to deal with the property freely. The doctrine of lis pendens under Section 52 of the TP Act was discussed, which prevents parties from dealing with the property in a way that affects the rights of other parties during the pendency of the suit. The court stated, "The principle underlying Section 52 of TP Act is based on justice and equity." However, the court allowed the defendants to deal with the property during the pendency of the suit, subject to furnishing security for Rs. 3 lakhs.

4. Adequacy and Application of Provisions in the CPC Related to Costs and Compensatory Costs:
The court noted the inadequacy of the current provisions for costs and compensatory costs under Sections 35, 35A, and 35B of the CPC. It emphasized the need for reform to deter vexatious and frivolous litigation. The court observed, "The lack of appropriate provisions relating to costs has resulted in a steady increase in malicious, vexatious, false, frivolous and speculative suits." The court urged the legislature and the Law Commission of India to revisit these provisions to make them more effective.

Conclusion:
The Supreme Court allowed the appeal in part, setting aside the High Court's direction for the plaintiff to file an undertaking to pay Rs. 25 lakhs as damages. Instead, the court permitted the defendants to deal with the suit property during the pendency of the suit, subject to furnishing security for Rs. 3 lakhs. The court highlighted the need for reform in the provisions related to costs to prevent frivolous litigation and ensure justice.